I find my usage of credit cards shrinking every year in the US. It's pretty much narrowed down to non Target retail, travel, and restaurants.
As the sellers get bigger and bigger and electronic cash payments become more normalized, I think we'll see more and more sellers charge at least 3%, if not 5% extra for credit cards so that all of their merchant fees and chargeback risk are covered.
Right now, it's just a bet that having the same price for credit card and non credit card will result in sellers willing to pay a higher price (a psychological phenomena), but more and more sellers are not betting on that.
I wonder if the effect of people being more willing to pay higher prices is seen in discretionary purchases, so travel/non staple retail will continue to incentivize credit card usage, while most other businesses will not.
It's simply an example of the principal/agent problem, finance 101.
CapitalOne shareholders will decide if they want to sue the management over buying a company which primarily focuses on AI-bubble-startups.
We're at a very late stage of the AI bubble which might be the last ZIRP-fueled bubble to pop after which VC as an investment vehicle will be dead for years to come. Rising tide lifts all boats and all, but many of the "genious" VCs already have problems returning capital from their older funds.
Capital One management is friends with VCs, VCs want to cash out from their investments without big losses, some parties, some holidays, as easy as that.
And anyone who thinks they can consistently predict who will be among the 4% is... mistaken. Diversification is how one manages risk when a system has a power law distribution of outcomes.
Trying to beat the market is playing a zero sum game. Someone has to lose for you to win. I understand savvy winners add information, but most winners are just lucky and it still makes me uneasy to play a zero sum game.
When you simply try to match the market, you float on the tide that mostly raises all boats and sometimes lowers them. That sits much better with me.
Yes, my understanding is that the cost of missing out on those companies that are providing the returns is much more costly than investing in a company that is NOT generating those returns.
In other words, the risk is to miss the winners, not that you will invest in a loser.
The problem is that it is very hard to predict the winners, so it is best to invest in all companies to make sure you have the winners
Banks are not taking huge losses because a huge fraction of loans to PE work out.
Imagine believing PEs are just constantly scamming banks out of their money. Yeah sure.
Its just that people have this carricature of PE in their head plus we are on HN where there are a huge fraction of Dunning-Krugers when it comes to topics about economy. Thats why you get these internally inconsistent arguments
Banks aren't the primary lenders to PE firms, but yes, the general PE business model for debt-financed acquisitions is entirely premised on using the collateral of acquired businesses to take out loans to pay themselves "dividends" and then letting the business fall into bankruptcy. This has been covered in extensive detail by WaPo, WSJ, The Economist, and the NYT. Mark Levine has some good articles on this.
It's okay for you to admit that you don't understand how PE firms work. I've been on both sides; as their tax advisor and at a PE-owned company and I've got firsthand experience with it.
I only contest the claim that lenders are the dumbasses that keep on taking losses. It's nonsense.
Despite having been a tax advisors apparently you don't understand that. That is suprising. Kinda shows that your role doesn't necessarily translate into knowledge about how companies operate.
My claim is not that lenders are dumbasses that keep taking losses, that's your claim.
Lenders are not some homogeneous static group like you imagine them to be. There are many different kinds of lenders (including "creditors" that lend no money at all), and there are constantly new lenders coming into the market all the time, many of whom are not yet sophisticated enough to grasp the risks of lending to PE-owned companies.
My claim was that individual lenders either stop lending to PE firms outright or jack up the interest they charge to PE owned businesses once they have suffered PE-related losses of the kind I described above.
Lending is about risk management, and interest rate pricing is based on the estimated risk of a loan not being repaid. PE-owned companies are considered extremely high risk by most lenders due to the types of shenanigans PE firms pull on a regular basis. It can take over a decade for a PE firm to develop the reputation that would allow the companies it owns to get debt financing on terms anywhere close to what a non-PE-owned company can get. This is part of what killed Toys'R'Us; the interest it had to pay for its debt financing post-PE acquisition exceeded was materially greater than the interest it paid for the same amount of debt financing prior to the acquisition.
As a followup, Saks declared bankruptcy this week, after a sequence of events that began with their PE investors ladling up Saks with debt to pay themselves dividends, added more debt to acquire another company (which resulted in the PE firm getting paid management fees for the "successful" acquisition), and then spun out the debt-ridden conglomerate so it was no longer their problem. In this case, the financial institutions that funded the PE shenanigans mostly got paid off after Saks had to sell one of its most valuable, landmark locations a few weeks ago. The "lenders" that got screwed this time were their suppliers that provided them inventory on credit (like Chanel, etc). Many of them had already stopped providing new inventory to Saks due to the unpaid balances.
Look you keep putting words in my mouth in a quite rude fashion.
You make this situation confusing by basically arguing against a strawman. Where did I say lenders are a homogeneous group? Where did I say that lenders dont understand risks and interest rates? Im pushing back against the prevalent notion that PEs are somehow hoodwinking lenders into constantly taking losses. Its not happening. Thats it. Feel free to show me data that proves otherwise.
If you just want to do a monologue about PEs and their shenanigans then please by all means do so but dont do it as a reply to my comment. Thank you.
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